The pension should not be protecting mansions

Adam Creighton below must be young.  He is an economist and speaks good economic sense.  But he seems to know nothing about politics. The tax exempt family home is untouchable.  Any politician who proposed reform to it would get a barrage of opposition and abuse and would lose the next election.

No matter how logically, you present your argument, what you present will be seen as dangerous and will easily be exaggerated by your political opponents. Note what happened to the Labor party at the last election when they proposed various economically reasonable tax reforms

It’s a bit pathetic the Coalition, far from the next election, is already ruling out options only days after announcing a broad review into the retirement income system.

Treasurer Josh Frydenberg ruled out “ever” including the principal residence in the eligibility test for the pension.

If the age pension is going to be means tested, then the “family home’’ must be included.

How can people respect the social security system when a pensioner in a Toorak mansion, clearly with vastly greater resources, is treated the same as one in a fibro in Sydney’s Bankstown.

No one should ever be forced to move but if a pensioners’ total assets (housing and financial) exceed some high bar, say $2m, then surely any age pension payments should be deducted from the ultimate inheritance.

A $2m tax free inheritance might become, say, $1.9m. Oh the horror!

Ask any financial planner; retirees often use their superannuation to upsize their home or fund renovations, which ensures the wealth is shielded from the eligibility test. This induces yet more money to flow into housing than otherwise would.

Perhaps the most ridiculous argument against including the principal residence in the eligibility test along with other assets is that it isn’t retirees’ fault their home is now worth so much.

It’s true: the extraordinary tax-free capital gains (“unearned” in the old nomenclature, because no one really lifted a finger to generate them) enjoyed by many boomers probably will never be repeated.

Surely that’s all the more reason for some of these gains to be used to fund retirement, allowing taxes to be lower for the current generation of workers who face an ever higher personal income tax burden.

When the Fisher government introduced the old age pension in 1908 it was about alleviating poverty — most people died before they were eligible and even then only the genuinely needy received it. Indeed, the family home was included in the eligibility test until 1912.

Today the pension is as much about subsidising inheritances as alleviating poverty.

The Callaghan review is a good opportunity to bring this fact, and the extraordinary cost to the economy of lifting the compulsory saving rate to 12 per cent, to light.

Indeed, there are good arguments for scrapping distorting means-testing, giving the age pension to everyone, scrapping super concessions and using the net savings to dramatically cut income tax.

But based on comments by the Prime Minister and Treasurer in recent days it looks like more pusillanimous fiddling at the edges is all we can expect.

SOURCE